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Nominal shocks in monopolistically competitive markets: An experiment


  • Davis, Douglas
  • Korenok, Oleg


A market experiment examines the capacity of price and information frictions to explain real responses to nominal price shocks. Results indicate that both price and information frictions impede the response to a nominal shock, as predicted by the standard dynamic adjustment models. Observed adjustment delays, however, far exceed predicted levels. Results of a pair of subsequent treatments indicate that a combination of announcing the shock privately to all sellers (rather than publicly) and a failure of many sellers to best respond to their expectations explains the observed adjustment inertia.

Suggested Citation

  • Davis, Douglas & Korenok, Oleg, 2011. "Nominal shocks in monopolistically competitive markets: An experiment," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 578-589.
  • Handle: RePEc:eee:moneco:v:58:y:2011:i:6:p:578-589 DOI: 10.1016/j.jmoneco.2011.11.001

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    References listed on IDEAS

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    Cited by:

    1. Lambsdorff, Johann Graf & Schubert, Manuel & Giamattei, Marcus, 2013. "On the role of heuristics—Experimental evidence on inflation dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 37(6), pages 1213-1229.
    2. Giamattei, Marcus, 2015. "Cold Turkey vs. gradualism: Evidence on disinflation strategies from a laboratory experiment," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-67-15, University of Passau, Faculty of Business and Economics.
    3. Jacopo Magnani & Aspen Gorry & Ryan Oprea, 2016. "Time and State Dependence in an Ss Decision Experiment," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(1), pages 285-310, January.
    4. repec:ctc:serie1:def11 is not listed on IDEAS
    5. Cars Hommes & Domenico Massaro & Matthias Weber, 2015. "Monetary Policy under Behavioral Expectations: Theory and Experiment," Tinbergen Institute Discussion Papers 15-087/II, Tinbergen Institute.
    6. Assenza, Tiziana & Grazzini, Jakob & Hommes, Cars & Massaro, Domenico, 2015. "PQ strategies in monopolistic competition: Some insights from the lab," Journal of Economic Dynamics and Control, Elsevier, vol. 50(C), pages 62-77.
    7. Duersch, Peter & Eife, Thomas, 2013. "Price Competition in an Inflationary Environment," Working Papers 0547, University of Heidelberg, Department of Economics.

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